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4/1/2025

Blocking 7-Eleven Deal on Security Grounds Would Hurt Japan's Image, Head of State-backed Fund Says

Reuters (04/01/25) Toyoda, Yukiko; Uranaka, Miho; Dolan, David

Japan risks reputational damage if it were to block a $47 billion foreign bid for retailer Seven & i Holdings (3382) on economic security grounds, the head of a government-backed fund said. Japan Investment Corporation (JIC) head Keisuke Yokoo also told Reuters in an interview the fund wants to help drive consolidation among chip-materials companies and is focused on improving performance at JSR, which it took private last year in a $6 billion buyout. JIC is not involved in the Seven & i deal, nevertheless, Yokoo's comments show that Japan's business establishment is not as uniformly protectionist as it is sometimes portrayed. His statements also underscore the broader stakes involved for the world's fourth-largest economy after Canada's Alimentation Couche-Tard (ATD) unveiled its bid to acquire the 7-Eleven owner in August. While protectionism is on the rise in the United States, where President Donald Trump has kicked off a trade war with a series of tariffs, Japan has in recent years stepped up efforts to entice more foreign investment, including by overhauling corporate governance. Circle K owner Couche-Tard has so far faced a frosty reception from Seven & i. Some politicians have cited economic security concerns over the potential acquisition, raising the possibility that Tokyo could take a protectionist stance to keep the beloved convenience store in domestic hands. "It wouldn't be good for Japan's image," Yokoo told Reuters in an interview on Friday, when asked about the potential impact if the government were to intervene and block the bid. "It's hard to see how the retail business is connected to economic security," he said. In September, Seven & i was classified as "core" to national security. While the mainstay convenience-store business wouldn't require a national security review in the event of a foreign takeover, Seven & i has wide-ranging operations, including financial services. JIC was set up in 2018 to invest in companies and boost Japan's competitiveness. It is overseen by the powerful trade ministry and on its website touts the need for "economic metabolism," a term used by policymakers to denote the need for stronger companies to replace weaker ones, often by acquisitions. One area in need of a shake-up is Japan's chemicals industry, Yokoo said. The sector includes firms that supply chip-related companies.

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4/1/2025

Activists Step Up Demands on Companies Globally in Q1, Focus on U.S. Corporations

Reuters (04/01/25) Herbst-Bayliss, Svea

Corporate agitators increased pressure on companies globally to perform better by engaging more of them worldwide during the first quarter, with most demands for change directed at U.S. corporations, according to new data from Barclays. Companies including oil major BP (BP) and ride-share company Lyft (LYFT) were pushed to make changes by activist investors such as Elliott Investment Management, Mantle Ridge and Starboard Value in the first quarter when the number of global campaigns increased by 17% to 70. U.S. campaigns jumped by 46% to 41, the data showed. "We are in a phase where activists continue to take advantage of all the uncertainties," said Jim Rossman, global head of shareholder advisory at Barclays. "In early 2025 we have seen more fights, more settlements and more board seats won by the activists than we did this time a year ago." This year's new campaigns come after a record number of activist shareholders engaged companies globally in 2024, and as President Donald Trump's tariffs and mass job cuts at U.S. government agencies, coupled with fears of recession, are creating market volatility. Investors continue to push management to run their businesses better, with roughly one quarter of all campaign demands centered on strategy and operations, about the same as last year. Demands for M&A moves like divesting business units or selling a company are still taking a back seat with only about a quarter of all campaigns including them. M&A demands are down by about half from when global deal volume hit a record high in 2021. But activists are also seeing campaigns pay off, Rossman said, noting the number of board seats won, often a measure of success, jumped during the first quarter. Fifty-one seats were obtained both in settlements and fights, marking a nearly 34% increase from last year. Emboldened by others' success and eager to make a return in uncertain times, activism is also becoming a popular tool for newcomers, both newly established funds and funds that have never mounted a campaign before. Eleven so-called first-timers mounted campaigns during the quarter, the data show. There was no comparative data for the first quarter of 2024. For all of 2024 Barclays data counted 47 newcomers. In January, newly launched Garden Investments, run by Ed Garden who previously co-founded Trian Fund Management, pushed Middleby (MIDD), which designs and makes equipment for foodservice and residential kitchens, to focus on its core business. In February, Garden was added to the company's board. Looking ahead to the rest of 2025, Barclays bankers believe more companies will face shareholder demands and expect most of the activity to remain focused on U.S. companies. Two prominent campaigns have been resolved through a vote, with Mantle Ridge ousting Air Products and Chemicals' (APD) CEO and Matthews International (MATW) defeating Barington Capital Group even through all three proxy advisory firms supported the hedge fund's candidates. Barclays data counted 13 proxy fights in the first quarter, compared with 10 a year ago. Activity has also picked up in Japan, marking a 45% increase from a year ago and a total of 16 campaigns, the data found. But Europe has not seen much action with only 9 activist campaigns, down 18% from a year ago.

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4/1/2025

Goldman Sachs Predicts High Costs and Dividend Danger in a Rio Tinto Single Listing

The Australian (04/01/25) Thompson, Brad

Goldman Sachs believes Rio Tinto (RTNTF) ditching its dual-listed structure may cost the miner billions of dollars more than previously estimated and reduce its ability to pay fully franked dividends to Australian shareholders. The investment bank said the total cost of collapsing the dual-listed structure could be in a range of $US7bn-$US15bn ($11bn-$24bn) with likely negative effects on the balance sheet, dividends and growth. The warning came in the countdown to a vote on the issue by London shareholders. Rio has estimated the tax cost alone would be “mid-single digit” billions of dollars and its Dominic Barton-led board has been unanimous in recommending shareholders vote against the proposal. Hedge fund Palliser Capital wants Rio to ditch its main London listing because its shares trade at a higher premium on the ASX. London shareholders will on Thursday vote on a motion to force Rio to conduct a strategic review of its structure, with big investors and shareholder advisory firms split on the issue. Australian shareholders will have their say on May 1. The proposal requires a 75% majority of PLC (London) and Ltd (Australian) shareholders to pass, with the result to hinge on the London vote given 77% of shareholders own the PLC stock. Barclays analysts said Rio may need to carry out the independent review even if the Palliser motion fails to gain anything like a 75% majority. “Our discussions with and recent statements from active managers on both sides of the DLC suggest limited appetite to vote in favor,” Barclays analysts said. “If more than 20% of shareholders vote in favor of the resolution, UK corporate governance standards require the board to consult shareholders to understand the reasons behind the result and update on views received and actions taken within six months.” The Goldman Sachs team said assuming no rollover relief or special concessions, collapsing the dual listing could cost shareholders $US5bn-$US7bn in capital gains tax. Goldman Sachs estimated the cost of foregoing the ability to continue to pay fully franked dividends to Australian shareholders at $US3.4bn. This was based on the geographic split of Rio’s future earnings not generating sufficient franking credits to underpin fully franked dividends. The analysis concluded the various costs could push net debt beyond $US20bn and may lead to “delay in key growth projects, impacting the ability for Rio to maintain its 60% dividend payout ratio, and limit its ability to pursue inorganic growth.” In contrast, Barclays said there would be some benefits to unifying the dual listing structure, including increased access to franking credits for Australian holders, eliminating Ltd cash transfers to PLC to fund dividend payments, simplification of group structure, and a more fit-for-purpose structure for scrip acquisitions. Under the Rio structure in place since 1995, all profits and assets are shared between the London and Australian listed companies and shareholders treated equally. However, the ASX-listed shares have traded at a premium, attributed to tax breaks on dividends. Palliser, which says it controls more than $US300m in Ltd and PLC shares, was formed by James Smith and others who worked at Elliott Management when it was instrumental in the unification of BHP’s listings in Britain and ­Australia. “All we are asking is for the (Rio) board to simply conduct a full, fair, and transparent review on the merits of DLC unification, which we believe to be the lowest risk, highest return form of capital allocation that the company has available today,” Palliser has said of its motion. Shareholder advisory firms Institutional Shareholder Services and Glass Lewis are supporting the motion.

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4/1/2025

Norway’s Sovereign Wealth Fund to Vote Against Rio Tinto Unification

Australian Financial Review (04/01/25) Ker, Peter; Wembridge, Mark

Norway’s $2.7 trillion sovereign wealth fund will vote against a push to collapse Rio Tinto’s (RTNTF) dual-company structure and unify in an Australian entity as proposed by British hedge fund Palliser Capital. But other big global pension funds are supportive of the plan, including those representing Californian teachers and public servants, which would end a structure in place since 1995. London shareholders are voting on the motion, which would force Rio to launch a strategic review of its structure, on Thursday. Investors on the ASX will vote at the start of May.

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3/31/2025

STIC Investments Draws Activist Interest, Including Align Partners

Korea Economic Daily (03/31/25) Park, Jong-Kwan

STIC Investments Inc. (026890), South Korea’s only listed private equity firm, has become the latest target of shareholder activism as Seoul-based Align Partners Capital Management Inc. joined the US private equity firm Miri Capital in building up a stake. Align Partners has raised its shareholding in STIC Investments to 6.64%, according to its regulatory filing on Friday. Its share purchase followed Miri Capital becoming the second-largest shareholder in the domestic private equity firm with an 10.8% stake. Align Partners’ shareholding in STIC Investments, is estimated at 360 billion won ($245 million), based on the current market price. The move comes as STIC Investments founder and Chairman Do Yong-Hwan, 68, is approaching a retirement age, while Korean buyout firms are increasingly engaging companies with poor governance to extract better returns. Amid the rise of homegrown investment firms in South Korea, STIC has been active in small- and medium-sized M&A deals. Align Partners, founded and led by Lee Changwhan, a former KKR and Goldman Sachs banker, has gradually increased its shareholding in STIC in open-market trade. Between March 20 and 27, it had aggressively snatched up the shares, according to investment banking sources. During the period, STIC’s share price soared 28.8% to 9,440 won. In 2023, Align Partners made headlines withs its shareholder campaign against SM Entertainment Co. (041510), a K-pop pioneer., sparking controversy and criticism toward the fund. Last year, it has expanded its campaign to Doosan Bobcat Co. (241560), urging the construction machinery marker to implement measures aimed at boosting shareholder returns. Last month, it submitted shareholder proposals to Coway Co. (021240), a water purifier and bidet rental company, before the latter’s annual general meeting, demanding greater transparency at its governance structure. Boston-based Miri Capital described itself not as an activist, but a "consultavist" as it seeks to enhance corporate value by connecting its portfolio companies with relevant players firms in their supply chains, as well as offering business advice. It was said that Align Partners and Miri Capital have separate under-the-table discussions with STIC Investment’s top management about business proposal and strategic advice. They are understood to have suggested the Korean PE house aggressively engage with investors through investor relations meetings to address its undervaluation. Industry sources said the two activist funds are unlikely to launch campaigns against STIC in the immediate term. But their share accumulation is posing a threat to STIC’s ownership structure. Its chairman Do Yong Hwan, 68, owns 13.46% of the firm. Together with its family and company executives, they own a combined 19.45%, only slightly ahead of the 17.42% jointly held by both Align Partners and Miri Capital.

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3/31/2025

Britain's LAPFF Recommends Votes Against BP Chair, Annual Report

Reuters (03/31/25) Nasralla, Shadia

Britain's Local Authority Pension Fund Forum (LAPFF) recommended on Monday that shareholders vote against the re-election of BP (BP) Chair Helge Lund, BP's annual report, remuneration report and abstain on whether BP CEO Murray Auchincloss should be re-elected. Institutional Shareholder Services Inc (ISS) and Glass Lewis have recommended that shareholders vote in favor of the re-election of BP's board, management and annual report at the April 17 annual general meeting. In a strategy revamp in February, Auchincloss said BP would slash spending on renewable energy and increase spending on oil and gas. This represented an overhaul of previous Chief Bernard Looney's 2020 strategy, which initially foresaw a 40% cut to BP's oil and gas output by the end of the decade, a 20-fold expansion of its renewables unit alongside the industry's most ambitious emissions reduction goals. More than three-quarters of BP shareholders had voted in favor of the plan in 2023. "LAPFF is disappointed with the 'reset' announced in 2025, in particular in the context of the governance around that shift," said LAPFF, which says it represents 350 billion pounds ($452.66 billion) of British local authority pensions, in a report.

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3/31/2025

Nippon Steel Accused by 3D Investment Partners of Harming Minority Investors in Subsidiary

Financial Times (03/31/25) Keohane, David; Dempsey, Harry; Lewis, Leo

One of the most prominent shareholder activists in Japan has accused Nippon Steel (NPSCY) of harming minority investors in one of its biggest subsidiaries, as the steelmaker attempts to push ahead with a politically fraught $15 billion takeover deal in the U.S. 3D Investment Partners, which was pivotal in the take-private deals of Toshiba and Fuji Soft, has built a roughly 10% stake in IT services group NS Solutions (2327) and is pushing for Nippon Steel to grant the subsidiary far more independence. The steelmaker owns 63.4% of NS Solutions, which has a market capitalization of $4.7 billion. “NS Solutions is currently grappling with issues such as missed growth opportunities, under-realized profitability, and an inefficient balance sheet,” said the Singapore-based fund on Monday in its first public comment on the investment. “The root cause of these issues is NS Solution's lack of independence from its parent company.” The corporate governance concerns come as the Japanese group tries to position itself as the ideal owner of US Steel. The deal was blocked by Joe Biden in one of his last acts as president, and Donald Trump has reopened the door to an agreement but said a condition would be that Nippon Steel only takes a minority stake. Talks are ongoing between both sides. 3D argues that NS Solutions' board is not sufficiently independent and that its relationship with its parent hampers its ability to win contracts with competitors. It also noted a deposit by NS Solutions of about ¥96bn ($644mn), roughly 40% of its net assets, that was earning just 0.2% in annual interest from Nippon Steel. “This rate is significantly below [NS Solutions'] cost of capital,” said 3D. “This deposit enables Nippon Steel to secure low-cost financing at the expense of [NS Solutions'] corporate value and the interests of its minority shareholders.” The fund said if NS Solution could achieve complete independence from Nippon Steel and better allocate capital, its earnings per share could double. NS Solutions said it welcomed “sincere opinions” from investors but some of 3D's views were based on mistaken facts and figures. It added there were significant synergies with Nippon Steel that outweighed the benefits of independence. 3D also owns a small stake in Nippon Steel. 3D's campaign mirrors that of another prominent activist, Strategic Capital, in relation to Osaka Steel (5449). The Japanese fund is urging Nippon Steel to either reduce its stake in Osaka Steel, in which it owns more than 65%, and make the company more independent or delist the subsidiary through a full takeover. Both funds allege that Nippon Steel secured low-cost financing through the subsidiaries to the detriment of their growth prospects and the interests of minority shareholders. The funds are in positions where their holdings could force Osaka Steel and NS Solutions to delist from the Tokyo Stock Exchange because the public shares outstanding would fall below minimum thresholds. Osaka Steel's low return on equity “is largely due to the deposits and loans with which Osaka Steel has been providing Nippon Steel for many years, funds which could have been used more effectively for the business,” said Strategic Capital late last year. Nicholas Benes, chief executive of the Board Director Training Institute of Japan, said an argument could be made that the reason behind the subsidiaries' “lackluster performance” was that “they are not being allowed to invest robustly” in their own businesses. Benes added that Nippon Steel “should be more aware than it seems to be” that “more people are going to point out how they treat their investments here in Japan” because its relationship to them mirrors the proposed structure of the US Steel deal.

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3/31/2025

Thames Water Selects KKR as Preferred Bidder

Financial Times (03/31/25) Plimmer, Gill; Smith, Robert

Thames Water has selected the US private equity group KKR & Co. (KKR) as its preferred bidder to take control of the UK’s largest water utility and aid its battle against renationalization. KKR, which is already a shareholder in Northumbrian Water, had submitted a preliminary £4bn bid to take a majority stake in Thames Water earlier this year. The decision means that interest from rival suitors including Covalis, Castle Water, and CK Infrastructure would not be taken forward at this stage, according to a person close to the company. Thames Water has been hurrying to raise new equity after its pension and sovereign wealth fund owners walked away from supporting the utility last year and declared it uninvestable, sparking a financial crisis. The company is struggling under £20bn of debt and is in dire need of extensive infrastructure upgrades to its network. On Friday, Alastair Cochran, the group’s finance director, announced his unexpected resignation. Thames Water said on Monday that after assessing proposals received, it had chosen KKR “to enter the phase 2 diligence stage” of its equity-raising process as preferred partner. There was no certainty that a binding proposal would be made by KKR, the utility added. KKR’s proposal included a “material impairment” to the utility’s top-ranking class A debt, which is held by U.S. investment groups such as Elliott Management and Elliott Pimco as well as British asset managers such as Aberdeen, Thames Water said. The U.S. private equity group has discussed offering these bondholders the opportunity to invest in Thames Water’s equity in exchange for a writedown, according to people close to the discussions. KKR is also said to have proposed less severe haircuts to bondholders than CKI.

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3/31/2025

Tokyo Exchange to Mandate English Disclosure to Lure Overseas Investors

Nikkei Asia (03/31/25) Muto, Tamayo

The Tokyo Stock Exchange (TSE) will require companies listed on its top-tier Prime section of the market to disclose key financial information both in Japanese and English, starting Tuesday, in a move aimed at creating a level playing-field between domestic and overseas investors. Some 1,600 or so Prime-listed companies are now required to disclose financial results in both Japanese and English at the same time. The rule also applies to information that may have a material effect on investment decisions, such as revisions to earnings forecasts, mergers and acquisitions and changes to representative directors. "The Prime market is a global market. We have decided to mandate English disclosure from the perspective of attracting more overseas investors," said Sayuri Nakamura at the TSE's listing department. Disclosure in English is part of a broader trend among non-English speaking countries in Asia. The Taiwan Stock Exchange, for instance, mandated that all listed companies disclose key information, which is equivalent to Japan's timely disclosure information, in English by 2024. In South Korea, large KOSPI-listed companies are now required to release material information in English within three days of Korean-language disclosures. Foreign investors often feel they are at a disadvantage when key documents are released only in local languages. According to a survey released by the TSE in August 2023, 72% of overseas investors responded that they were "somewhat dissatisfied" or "dissatisfied" on Japanese companies' English disclosures. "Dissatisfaction mostly comes from the gap in the amount of information in Japanese and English, and also from the time lag of disclosure," said Nakamura. The move is part of broader efforts by the TSE to bring the governance standards at Japan Inc. to international levels. The TSE has introduced a series of measures to raise awareness among Japan's listed companies about their low stock market valuations, urging companies whose share prices are less than their book value to work harder to raise the valuations. The efforts have been paying off, as the TSE now hears more overseas investors expressing high expectations for Japanese stocks. "We are also hearing securities firms saying that the tide is turning," said Natsumi Yamawaki, manager at the listing department at the TSE. "The challenge is how to maintain positive attention to Japanese companies," said Yamawaki. "We encourage companies to engage with investors and create a cycle that will increase corporate value," she said. Her hope is to increase the number of "investors who are committed to companies with a medium- to long-term perspective." Naomi Fink, chief global strategist at Nikko Asset Management, said TSE's request for English disclosure is "very consistent" with what has been already done. The TSE is "putting a large amount of emphasis on disclosure as a whole, and I see English disclosure as part of that." "We already have quite a lot of overseas investment in Japanese stocks, and of all overseas investors, there's quite a few activist investors and those that are putting a lot of emphasis on corporate governance," Fink pointed out. "If there isn't transparent data, then you're less likely to invest overall. To increase transparency for all investors, especially overseas investors, I think English exposure is a big advantage."

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